As I noted in my essay Big Oil Buys Big Ethanol, I expected that we would see more oil companies buying up troubled ethanol assets. Per the Houston Chronicle, Sunoco has become the latest:
Oil companies shop for discounted ethanol plants
FULTON, N.Y. — When Sunoco closed this week on the acquisition of a bankrupt ethanol plant for pennies on the dollar, it became just the latest oil refiner to step into the alternative fuels market.
Traditional refiners under pressure to reduce emissions are finding new avenues to meet evolving environmental standards, and finding big bargains along the way.
However, I think the article largely misses the point of why these transactions are taking place:
The plant is close to Sunoco’s main operations in the Northeast where many of its 4,700 gas stations are concentrated, but the shift in U.S. energy policy was a big motivator.
The entry of traditional oil companies is part of a natural industry evolution, [Matt] Hartwig [of the Renewable Fuels Association] said.
I don’t think these transactions are taking place because oil companies want to go green, or because they see this as a fantastic growth opportunity. They are doing this merely because they have been required to put ethanol in their gasoline. To meet their commitments, they can either purchase ethanol from the ethanol producers, or they can buy their own ethanol plants. If you can acquire ethanol plants for pennies on the dollar, it is cheaper for them to go that route. If, on the other hand they thought the mandates were going away, I don’t think they would be jumping in.
But don’t be surprised if the top U.S. oil companies — Exxon Mobil Corp., Chevron Corp. and ConocoPhillips — don’t make the leap, Kment said.
“For them, a 50 million gallon, or even a 100-million gallon plant would only produce a drop in the bucket of their total needs,” Kment said.
But again, it isn’t about their total needs. It is about meeting the ethanol mandate, which they can do by producing “a drop in the bucket of their total needs.” This isn’t about oil companies trying to become ethanol companies. The scale of ethanol is far too small for that. Even if the oil companies bought up all of the ethanol capacity in the country, it would still be only a drop in the bucket. But it would enable to them to fulfill the government mandate.
Although they're probably figuring on making a little money, it will be a very small amount compared to their overall business.
I imagine they might be looking at a possibility of incorporating some cellulosic into the operation, and mining the PR opportunity.
i heard that ethanol was close to bumping up against the 10% mark of nearly all fuels in the US. that would leave growth opportunities very small (despite the mandate) until they can get approval for E15 or higher.
We use about 140 Billion Gallons of gasoline/yr.
Right now we're probably producing close to 10.9 Billion gal of ethanol/yr. There are enough refineries under construction to take out the 14 Billion/yr mandate.
BUT, those refineries will, probably, be pretty much completed sometime next year, and the mandate doesn't get to 14 Billion for a couple of years (it's at 10.5 this year, I believe.) That means that if gas goes back below about $2.00/gal, and stays there for a year, or so, there will be a bunch more bankruptcies in the ethanol business.
It's a Dangerous business. Dangerous, Dangerous, Dangerous. Wouldn't touch it with my ex-wife's husband's money. A LOT of things have to go right. And, if they all do go right, you're still in a "commodity" business with fairly low barriers to entry.
Shell is touting selling "cellulosic" E10 (from the pilot plant they, and Iogen are partnered in) in some of their Canadian stations. I wouldn't be surprised if Sunoco isn't looking at the possibility of doing something similar.
Rufus:
Wouldn't it make more sense to have all-ethanol cars on the road, using higher compression ratios? It seems we are nearly mixing oil with water, when we force-feed ethanol into gasoline. I understand they cannot move ethanol in pipes, it has to be trucked around.
Some ethanol cars (PHEVs), some gasoline and some CNG. Makes sense to me.
Sign of the times: Ethanol almost 40 cents cheaper than gas
by Sebastian Blanco on Jun 1st 2009 at 8:47AM
Driving around mid-Michigan over the weekend, I couldn't help but notice how much gas prices have jumped in the last few weeks. According to AAA, the national average price for a gallon of regular gas has jumped up 50 cents in the past month to $2.50. Well, this is a good time to have a flex-fuel vehicle if a local Mobil station is representative of a national trend. Filling up with the biofuel around here will save you 38 cents per gallon, which is something to think about even though there's less energy in the corn juice. Actually, according to E85 Prices, the national average difference is about 42 cents a gallon. A gallon of E85 will cost you something like $2.08, they say. What do the signs look like in your neck of the woods?
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Ethanol scam going on in Virginia?
by Xavier Navarro on Jun 19th, 2009 at 12:29PM
The Virginia State Agriculture Department is investigating gas stations that might be selling people bad gas. In this case, "bad" means too much ethanol. While the maximum percentage of ethanol that can be blended with unleaded fuel in that state is 10 percent, some people claim that some stations are selling fuel with excess corn in it. The Department discovered a wide range of ethanol blends in different samples, with one reaching 50 percent. As regular readers know, it's a bad idea to pump that much ethanol in your car if it's not ready for it (emergencies aside), as it can damage the entire fuel line. Ethanol is more corrosive than unleaded. Virginia authorities have yet to find out whether the overblending was intentional (ethanol is cheaper than gas) or simply a mistake
http://www.autobloggreen.com/
Actually, Benny, Kinder Morgan IS shipping ethanol in pipelines as we speak, with plans for more. It costs some to make the pipelines ethanol-ready, but it's not cost prohibitive.
There aren't enough stations selling E85, yet, for the auto manufacturers to be interested in doing ethanol-only cars.
The good news is the engines that will be coming out in the next few years will be able to "optimize" both E85, and gasoline.
Not to get too deep into the weeds, here, but the hang-up has been "how to manipulate Displacement." Compression is easy. Saabs been doing it for several years with a varible ratio turbo. Interestingly, GM Has been manipulating displacement with their "Thermal management system," otherwise known as "displacement on demand."
Now, comes VVT, Direct Injection, and some other goodies, tied in with more robust computers, and we should be seeing small engines like the Ford Ecoboost getting really good power, and mileage on both fuels. All car companies have engines of this type on the way. The first-year iteration of these engines will be strictly gasoliine, with the flexfuel versions coming along in the second, or third years.
It should be interesting.
Oh, and if your car was built after 1975, or thereabouts, you don't have to worry about getting a tank-full of ethanol. Just drive it out, and keep adding e10 till the CEL goes away. You might even be pleasantly surprised at your mileage when you get down to around E30.
To say that approval of E15 is required in order to have growth opportunities is to say that E85 is a dud and has very little growth opportunity. Has E85 really hit a wall in potential growth?
Clee, ethanol is a complicated market. It's made even more so by the fact that it relies on Oil Companies, to a large extent, for its distribution, and sales.
E85prices.com shows the number of stations offering E85 to be growing quite rapidly, again (210 added in May, almost certainly more in June;) but, there are still only about 2150 at present.
Another complicating factor is the number of vehicles on the road that can use E85. Today, there are, supposedly, about 7 million; but the owners of many of those don't even know they're flexfuel. We're probably adding about 1 million this year, and they're promising to produce about two, or three million in 2012.
Whether you could get enough E85 capability to accomodate the mandated "cellulosic" in 2013 is Anybody's guess.
The situation is fluid, to say the least.
E85's main problem is that most of the 2000 stations that sell it charge too much for it. AAA keeps track of E85 prices, and they are routinely 5-20 cents higher per gallon when adjusted for BTU content. That's not a good way to get customers for a new product given how frugal most of the gasoline buying public is. http://www.fuelgaugereport.com/
KinderMorgan to my knowledge is only routinely shipping neat ethanol in the Central Florida pipeline, which is gasoline only, short (110 miles) and small (16" diameter) and has no intermediate delivery points. Buckeye is also looking at something similar in Ohio. It's a start, but we're a long way from routine ethanol shipments by pipeline. KM will continue to keep an eye on possible stress corrosion cracking in that line over the next year or two before doing much more than that.
I'm still highly skeptical that there is much of a future for ethanol in the long term. Biofuels yes, but are there many folks who don't believe that biobutanol or green gasolines & diesels will become competitive with ethanol in the next few years? Higher energy density biofuels rock. Why waste time with new ethanol engines or dedicated ethanol pipelines when better fuels are right around the corner? Ethanol is a good starter biofuel, but doubt it's here for the long term.
Hi RR, have you heard of Windfuel? And Doty Energy? Their idea seems to take wind energy and CO2 from power stations to do the syngas-FTS thing. At 80% efficiency and viable at $40 oil. See: http://www.dotyenergy.com/FAQs/Faqs.htm
JN2, I took a look at the link. It looks like their numbers are just theoretical; they haven't actually demonstrated them. While you have to start out somewhere, most of the time reality intrudes upon theory whenever the idea moves into the lab. If they demonstrate those results, then they will have something to really talk about.
RR
RR: Thanks for your feedback. I hope they (Doty) can make it happen!